UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE
COMMISSION
Securities Exchange Act of 1934
Release No. 44414 / June 13, 2001
Administrative Proceeding
File No. 3-10506
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In the Matter of
Patrick J. Rooney and Respondents.
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ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTIONS 15(b)(6) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, IMPOSING CEASE-AND-DESIST ORDERS, AND REMEDIAL SANCTIONS |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Patrick J. Rooney ("Rooney") and Adrian Alexander ("Alexander") (collectively, "Respondents"), pursuant to Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934 ("Exchange Act").
II.
In anticipation of the institution of these administrative proceedings, Respondents have submitted Offers of Settlement ("Offers") that the Commission has determined are in the public interest to accept. Solely for the purpose of this proceeding, and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, prior to a hearing and without admitting or denying the findings set forth herein, except as to: (a) jurisdiction, and (b) the existence of the prior convictions and Bar Orders discussed in Section IV(A) below, which each admits, Respondents consent to the issuance of this Order Instituting Public Proceedings Pursuant to Section 15(b)(6) and 21C of the Securities Exchange Act of 1934, Making Findings, Imposing Cease-and-Desist Orders, and Remedial Sanctions ("Order") and to the entry of the findings and the imposition of the remedial sanctions as set forth below.
III.
Accordingly, IT IS ORDERED that said proceedings be, and hereby are, instituted.
IV.
On the basis of this Order and the Offers, the Commission finds the following:1
A. Respondents
Patrick J. Rooney, 62, is a Canadian citizen currently residing in Toronto, Canada. Rooney was formerly associated with and a principal of Rooney Pace, Inc., a now-defunct broker-dealer registered with the Commission under Section 15(b) of the Exchange Act. On June 17, 1988, Rooney was convicted of filing a false federal tax return for 1983 and conspiracy to defraud the United States government. Based on that felony conviction, on December 20, 1988, the Commission accepted Rooney's offer to consent to the entry of an order barring him from associating with any broker or dealer, investment company, investment adviser or municipal securities dealer (the "Rooney Bar Order"), which was to commence if an appeal of his criminal conviction was unsuccessful. The Rooney Bar Order took effect on January 10, 1989, and provided that after three years Rooney could reapply to become associated with a broker, dealer or securities firm. On May 19, 1992, Rooney filed an application to associate with Donald & Co. Securities, Inc. On October 1, 1992, Rooney withdrew this application before it was acted upon. Rooney has not reapplied to associate with any other broker, dealer, or securities firm since the Rooney Bar Order took effect on January 10, 1989.
Adrian Antoniu Alexander, 54, formerly known as Adrian Antoniu, is an American citizen who has a residence in Boulder, Colorado. Alexander was associated with Morgan Stanley & Co., Inc. from August 1972 to May 1975, and with Lehman-Brothers Kuhn Loeb, Inc. and its predecessor Kuhn, Loeb & Co. from May 1975 to July 1978. On August 11, 1982, Alexander was convicted of two counts of violations of Sections 10(b) and 32(a) of the Exchange Act, Rule 10b-5, and 18 U.S. Code Section 2 in an insider trading case. The counts alleged that Alexander "carried out a scheme in which material nonpublic information about two public companies was misappropriated in 1976 in breach of a duty of trust and confidence and used to trade in the securities of these companies." On September 15, 1985, the Commission issued an Order Instituting Proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act with respect to Alexander. On December 3, 1987, the Commission affirmed an Initial Decision ordering that Alexander be barred from association with a broker, dealer, municipal securities dealer, investment adviser, or investment company. Alexander appealed and on June 19, 1989, the Eighth Circuit reversed and remanded the Commission's order for further consideration. On April 23, 1992, pursuant to an Offer of Settlement, and without admitting or denying the allegations contained in the September 15, 1985 Order Instituting Proceedings, Alexander consented to a Commission order barring him from association with any broker, dealer, municipal securities dealer, investment adviser, or investment company, with a right to reapply after August 11, 1992 (the "Alexander Bar Order"). Alexander has not reapplied to associate with any broker, dealer, or securities firm since the Alexander Bar Order took effect on April 23, 1992.
B. The EC American Unregistered Brokerage
During the period from at least 1991 through at least 1996, Rooney owned, operated, and controlled an unregistered broker from offices in New York. The unregistered broker operation used various names during this period, including "EC American Securities Corp."; "EC American Corp."; and "EC American Ltd." (hereinafter collectively, "EC American"). Rooney described EC American as a "merchant bank" rather than a broker, and attempted to hide his ownership and control of EC American by describing himself as a "consultant." In fact, Rooney funded the creation of EC American, chose its name, and hired various personnel to work at EC American including persons who were formerly his close associates at Rooney Pace. Rooney maintained an office and secretary at EC American, received benefits such as health insurance and life insurance through EC American, and directed that funds from various EC American accounts be used to pay both his personal and business expenses.
Rooney hid his control of and financial interest in EC American through offshore companies administered by a nominee located in Jersey, Channel Islands. In or about 1991, Rooney caused this nominee to create two British Virgin Islands companies: Oracle Ltd. ("Oracle") and EC American Ltd. ("ECAL BVI"). Rooney operated Oracle through his nominee pursuant to an unwritten arrangement in which he described himself as a consultant. Oracle in turn had an unwritten consulting arrangement with ECAL BVI, and ECAL BVI then ostensibly provided consulting services to EC American. In fact, Rooney beneficially owned and controlled Oracle and ECAL BVI. The tiered consulting arrangement between EC American, ECAL BVI, and Oracle was designed to provide and in fact provided a means for Rooney to hide his direct pecuniary interest in EC American's operations. Fees due EC American were directed to an offshore account held in Oracle's name in Jersey, and funds from this account were used for Rooney's business and personal expenses.
By 1992, Alexander joined EC American also as a consultant. Until he left EC American in 1996, Alexander shared an office with Rooney, and worked with Rooney in various capacities in structuring financing for, and soliciting investors in, public and private securities offerings.
C. EC American Sold Securities for the Account of Others
Rooney's and Alexander's activities through EC American included structuring financings for various companies; directly soliciting persons to purchase securities in those financings; contracting with others who would obtain a commission for selling the securities; controlling investor funds raised from those sales until the transactions closed; and upon closing of the transaction, receiving transaction-based compensation.
1. Disease Detection International, Inc.
Rooney represented to a company called Disease Detection International, Inc. ("DDI") that he had taken a company public in Italy and was returning to the United States to become involved in the brokerage business and do deals in the United States. Thereafter, Rooney and Alexander structured and prepared private placement memoranda for two private placement financings for DDI, raising a total of approximately $2.6 million. Rooney was actively involved in deciding the types of securities that would be issued, the amount of securities that would be offered, and the selling price. Rooney and Alexander each directly solicited investors to participate in these private placements, by telephoning or meeting with prospective investors, and then causing persons working at EC American to provide private placement memoranda and subscription agreements to the prospective investors. In addition, Rooney hired individuals who used office space and telephones at EC American's New York office to solicit prospective investors. These third parties were paid a commission based upon a percentage of the amount of the private placement they sold. The persons who purchased shares of DDI in these private placements sent their subscription agreements to EC American and their funds to an account opened by employees of EC American at Rooney's direction. The investors' funds remained in this account, and under EC American's control, until the private placements closed, at which time EC American employees disbursed the funds. Upon closing of the private placements, EC American collected its fees by transferring monies from this account to other accounts held by EC American.
2. Trinity Biotech plc
Rooney and Alexander were involved in the initial public offering of Trinity Biotech plc ("Trinity"), which raised approximately $5 million. Rooney structured the initial public offering, and effectively determined the number and classes of shares to be offered, the amount to be raised, and disposition of proceeds. Rooney and others at EC American organized and appeared at road shows promoting the initial public offering. Rooney, Alexander and others at EC American directly sold over $4 million of the initial public offering, and Rooney and Alexander directly solicited investors to subscribe to the offering. The prospectus disclosed that EC American was paid $125,000 from the proceeds of the offering as a "finder's fee."
3. Obsidian Research N.V.
Rooney was involved in a private placement of shares in Obsidian Research N.V. ("Obsidian") that raised approximately $1.2 million. In fact, the private placement memorandum stated that EC/American structured the private placement transaction and was being paid a fee from the proceeds of the offering. Rooney and Alexander directly solicited persons to purchase shares in the private placement. In addition, others hired by Rooney either as employees of EC American or as "independent contractors" solicited investors, and Rooney paid them a commission based on a percentage of the amounts they sold. The investors' funds were received in an account controlled by persons employed at EC American, and EC American employees disbursed the funds after the placement closed. Rooney transferred a percentage of the total amount raised from the sales of shares of Obsidian securities to another account controlled by EC American. Obsidian never commenced operations.
4. Therapeutic Patch Research N.V.
Rooney and Alexander were involved in a private placement of shares in Therapeutic Patch Research N.V. ("TPR"). Again, Rooney structured the TPR private placement. Rooney and Alexander directly solicited persons to purchase shares of TPR and prepared the private placement memorandum. Rooney and others at EC American also paid a commission to others to find buyers for the shares. Investors' funds were deposited in an account controlled by EC American. Rooney's compensation, payable to EC American, was contingent upon the amount of funds raised in the offering, consisted of a percentage of the offering, and was paid out of the proceeds of the offering when it closed. As additional compensation, EC American received Class D warrants in Pharma Patch plc, an Irish company, in which Rooney also had an interest. Pharma Patch plc ultimately received some of the funds raised by these TPR offerings.
5. Syntech International, Inc.
Rooney represented to a company called Syntech International, Inc. ("Syntech") that he had raised money for other companies and could raise money for Syntech. Thereafter, Rooney and Alexander through EC American raised an initial $900,000 from a private placement of Syntech securities, and committed to raise another $4.8 million in a subsequent private placement that failed to close. Rooney and Alexander structured the private placements. Their efforts included creating new entities that were formed for the purpose of offering securities and to which particular Syntech assets were transferred. In addition, Rooney and Alexander determined the type and amount of shares to be sold, and the amount of funds to be raised. They also sold the securities. Funds raised by Rooney and Alexander for Syntech were deposited into an account controlled by EC American. EC American's fees were a percentage of the funds raised and were paid out of the proceeds at the time the placement closed.
6. Vista Technologies, Inc.
Rooney and others at EC American were involved in creating and raising funds for a company named Vista Technologies, Inc. ("Vista"). Vista's 1994 Form 10-K identified "EC/American Ltd. of New York and Bermuda" as its financial advisor that assisted in arranging and structuring foreign and domestic private placements, and in structuring acquisition transactions and exchange agreements. In fact, "EC/American Ltd. of New York and Bermuda" was Rooney. Rooney, through EC American, structured a series of private placements and other financing for Vista, selling approximately $6 million in securities in these various offerings. Investors' funds were deposited into bank accounts controlled by EC American, and Rooney and others associated with him controlled the disbursement of these monies. Rooney and Alexander directly solicited persons to purchase Vista securities, and Rooney again paid others a percentage commission for finding persons to buy Vista stock. EC American was paid transaction based compensation from the funds raised at the closing of the placements.
D. Rooney Associated With a Registered Broker-Dealer
In addition to Rooney's illegal activities as an unregistered broker through EC American, Rooney illegally bought and controlled a registered broker-dealer using persons employed by EC American and offshore nominees to conceal his actual involvement. In 1993, Rooney caused a nominee located in Jersey to create an Irish corporation named EC American Securities Ltd. ("ECAS IRE"). In March 1993, acting through this nominee and a person employed by EC American, Rooney caused EC American to acquire a registered broker-dealer named Freundlich-Lubeck & Co., which he then renamed EC American Securities Corp. ("ECAS USA"). The funds to purchase ECAS USA came from offshore accounts controlled by Rooney. Subsequent to the acquisition, then-officers of ECAS USA filed Forms BD that falsely identified ECAS IRE as the owner of ECAS USA, and a Jersey nominee as the owner of ECAS IRE. Rooney exercised actual control over ECAS USA, causing personnel to be hired through nominees as well as hiring them directly, directing the activities of personnel of ECAS USA, and causing employees of ECAS USA to be fired, including two presidents of the broker-dealer.
In 1994, Rooney changed the name of ECAS USA to Baker Weeks & Co., Inc. ("Baker Weeks"), and orchestrated the transfer of the apparent ownership of the broker-dealer to the subsidiary of a publicly traded company named California Quartz Inc. ("California Quartz"). Prior to the transfer, Rooney had gained the ability to exercise control of California Quartz through a financing transaction involving nominees. California Quartz ceased operations shortly after it acquired Baker Weeks. Subsequently, in 1995, legal ownership of the broker-dealer was transferred to an entity owned in part by Rooney's son John R. Rooney.
V.
A. Legal Discussion
Section 15(a)(1) of the Exchange Act makes it illegal for a "broker" or "dealer" to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security unless such broker is registered with the Commission or, in the case of a natural person, is associated with a registered broker or dealer. Section 3(a)(4) of the Exchange Act defines "broker" as any person, other than a bank, "engaged in the business of effecting transactions in securities for the account of others."3 "Regularity of participation" in securities transactions is a primary indicia that one is engaged in the business of effecting securities transactions. SEC v. Kenton Capital, Ltd., 69 F. Supp. 2d 1, 12-13 (D.D.C. 1998). A person may be found to be acting as a broker if he participates in securities transactions "at key points in the chain of distribution." Massachusetts Financial Services, Inc. v. Securities Investor Protection Corp., 411 F. Supp. 411, 415(D. Mass.) aff'd, 545 F.2d 754 (1st Cir. 1976), cert. denied, 431 U.S. 904(1977). Among the activities that indicate a person may be a broker are: solicitation of investors to purchase securities; involvement in negotiations between the issuer and the investor; and receipt of transaction-related compensation. See, e.g., SEC v. Hansen, [1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) 91,426 (S.D.N.Y. 1984). Through EC American, Rooney held himself out as a person who could provide financing for companies through the sale of securities. In addition, Rooney and Alexander structured and sold securities in several different offerings over a period of at least five years. EC American, Rooney and Alexander actively found investors for several issuers. They received transaction-based compensation.
By acting as brokers, Rooney also violated the Rooney Bar Order, and Alexander also violated the Alexander Bar Order. In addition, Rooney's undisclosed ownership of a registered broker-dealer through foreign nominee corporations and his actual involvement in and control of that broker-dealer also violated the Rooney Bar Order.
Based on the foregoing, the Commission finds that Rooney and Alexander each willfully violated Sections 15(a)(1) of the Exchange Act and his respective Bar Order.
VI.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the following sanctions to which Rooney consents.
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21B of the Exchange Act, that Patrick J. Rooney pay a civil penalty in the amount of $700,000 to the U.S. Treasury within ninety (90) days of entry of this order. Such payment shall be: (a) made payable by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; (d) submitted under a cover letter that identifies Rooney as the Respondent in this matter and identifies the case number of this matter; and (e) a copy of the cover letter and money order and/or check shall be sent to Thomas C. Newkirk, Associate Director, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549-0801;
IT IS FURTHER ORDERED, that Patrick J. Rooney be and hereby is barred from association with any broker or dealer; and
IT IS FURTHER ORDERED, that Patrick J. Rooney cease and desist from committing or causing such violations and any future violations of Section 15(a) of the Exchange Act.
VII.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the following sanctions to which Alexander consents.
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21B of the Exchange Act, that Adrian Antoniu Alexander pay a civil penalty in the amount of $100,000 to the U.S. Treasury within ninety (90) days of entry of this order. Such payment shall be: (a) made payable by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; (d) submitted under a cover letter that identifies Alexander as the Respondent in this matter and identifies the case number of this matter; and (e) a copy of the cover letter and money order and/or check shall be sent to Thomas C. Newkirk, Associate Director, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549-0801;
IT IS FURTHER ORDERED, that Adrian Antoniu Alexander be and hereby is barred from association with any broker or dealer; and
IT IS FURTHER ORDERED, that Adrian Antoniu Alexander cease and desist from committing or causing such violations and any future violations of Section 15(a) of the Exchange Act.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
1 The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding.
3 Effective May 12, 2001, this definition was amended to, among other things, substantially remove the exemption for banks. Rooney often described EC American as a "merchant bank"; however, EC American was not a "bank" as defined in Section 3(a)(6) of the Exchange Act and therefore would not have been able to rely on the "bank" exemption, as it existed prior to these amendments.